Battered by inflation, consumers are tightening belts. Double blow to rural Indians

Lower middle-class and rural consumers are cutting discretionary spending, choosing cheaper local products and buying less to stretch the rupee as much as they can.

Representational image of a fruit and vegetable market | ANI

Mumbai: Swapnil Pawar in Pune district’s Saswad village district has had an unlucky streak lately.

The 33-year-old lost his well-paying job as a factory worker at General Motors’ Talegaon plant as the company wound up its operations and shut down its last manufacturing unit in the country in 2021.

Pawar then began selling vegetables in his hometown to make ends meet and support his family of six. But soaring inflation has made it almost impossible for him to manage within his meagre income.

He sells vegetables worth Rs 4,500-5,000 every day but barely makes a profit of about Rs 500 after transport overheads.

“We buy vegetables at high prices but consumers here are not willing to shell out so much. We barely make anything out of it,” said Pawar.

“That’s hardly enough for sustenance given the inflation. We get by but I shudder to think how we’ll manage if any of us fall ill and we have medical expenses or how I will fund my three-year-old daughter’s education,” he added.

With less money in his pocket, Pawar has also ditched his plans to buy a cheap small car, a dream he had since his days at the automobile plant.

About 186 km away, Sanchita Matkar, a 32-year-old gig worker in Mumbai’s suburb of Khar East, has been dreaming of buying a gold necklace since 2016 to replace the one she sold after demonetisation when her husband’s lottery-selling shop went bust.

But it still remains a distant dream.

With prices shooting through the roof and her household income almost unchanged, Matkar’s savings have been squeezed and she’s put any discretionary spending on hold.

“Earlier, we would save some amount after spending on kirana and other household expenses but since COVID-19, we have stopped saving given the price rise in food products such as pulses, vegetables and edible oil,” she says.

Matkar’s husband has found another job as an office administrator in the commercial hub of Airoli, and the husband and wife together bring home Rs 40,000 a month—but she still hasn’t been able to replace her gold necklace.

Pawar’s and Matkar’s stories offer a glimpse into how people across the country are cutting back as they struggle to make ends meet due to skyrocketing prices of everything from essentials such as food and clothing to luxuries such as travel.

With prices soaring out of control, battered lower middle-class and rural consumers are tightening their belts. They are cutting discretionary spending, choosing cheaper local products and buying less to stretch the rupee as much as they can.

Indian consumers have been hit by painfully high inflation since the pandemic, with supply-chain issues and geopolitical factors such as the Russia-Ukraine war fuelling a rise in the prices of several commodities such as edible oils.

Even though India bounced back from the coronavirus pandemic and spending recovered as the prices of these commodities eased, consumers have still been reeling from the impact of a poor monsoon last year that sent food inflation spiralling.

The prices of pulses and basic vegetables such as onions and tomatoes shot up, affecting people’s budgets as food accounts for a substantial chunk of household spending in the country.

“For the last some years, we have seen generalised as well food inflation. The rains were not good last year and that led to a decline in farm output and subsequent inflation. This also impacted the income of rural areas and hence consumption witnessed a downtrend,” said Madan Sabnavis, chief economist, Bank of Baroda.

According to Sabnavis, rural consumption was hit by low farm yields and incomes while urban spending, especially in lower-income groups, was down due to inflation.

“If consumers have to spend more on necessities such as food, then very little is left for discretionary purposes,” he adds.

The question that many are asking is: Will the festive season perk up consumption or will inflation continue to play spoilsport? Both economists and consumers are hopeful with some signs of recovery, but inflation still remains a big worry for the average Indian.

Falling consumer confidence

The numbers are telling. While India’s retail inflation has been fluctuating over the past year, food inflation has been persistently high.

Food inflation was at 9.4 percent in June before it plunged to 5.4 percent in July. Vegetable inflation dropped to 6.8 percent in July from 29.3 percent in June, but climbed again to 10.7 percent in August.

The Reserve Bank of India’s bimonthly consumer confidence survey conducted in July showed that consumer sentiment fell for a second straight survey after being on the rise since the end of the pandemic.

The report said consumer sentiment on major parameters such as the economic situation, employment, price level and income, except for spending, had moderated and, as a result, the current situation index (CSI) fell to 93.9 in July 2024 from 97.1 two months earlier.

The latest round of the survey was conducted from 2 to 11 July and covered 6,062 respondents.

Rural India has suffered a double blow. Farm incomes were already down because of last year’s poor rains and low crop yields, and now inflation is leaving little money in the hands of rural consumers.

Across the countryside, farmers are struggling to cope with dwindling incomes and rising prices.

About 28 km from the district headquarters of Nashik in the village of Pimpalgaon Baswant, 28-year-old farmer Suresh Purkar is struggling to run his household of eight on his farm income of Rs 8 lakh a year.

Last year, insufficient rainfall impacted crop yield, and then just as Purkar was able to recover his investment, Bangladesh, one of the largest importers of grapes, imposed a heavy duty on imports of the fruit.

“We are barely making ends meet and I am earning just enough to cover our household expenditure. Beyond that, we do not have the means to spend on anything,” he adds.

Some farmers are turning to other businesses.

Ramchandra Jagtap, a former farmer in Pune district’s Kaldiri village, decided to take up an alternative profession about two years ago as his income from growing fruits such as figs, custard apples and guavas was not enough to sustain his family. Buying essentials such as pulses, oil and other household items would bleed his savings.

Jagtap decided to start a roadside stall selling cigarettes, mouth fresheners and packaged food.

But with inflation playing spoilsport, his situation is only marginally better.

“I make Rs 12,000 in a month and given the high expenses and overheads such as rent of Rs 3,000, that’s not enough to survive. We cannot even think of spending on things like movies or going to town to eat,” he says.

An average consumer in rural areas spends about 46.4 percent of their earnings on food, while urban consumers spend 39.2 percent, according to the government’s All India Household Consumption Expenditure Survey for 2022-2023, released this February.

According to economists, rural consumers in particular are hit by food inflation given the high share of expenditure on food in these regions.

“The share of food in the consumption basket is higher in rural areas and also for the lower income groups and hence, they feel the pinch more than the other consumer cohorts,” says Dipti Deshpande, principal economist at CRISIL, an analytics company that provides ratings, research, risk and policy advisory services.

Cutting back

Kirana shop owners say spending is down significantly as consumers cut back.

Vasantha, a 32-year-old woman who has been running a kirana store in Karnataka’s Mandya district for six years, says she has observed that people have started buying smaller quantities.

“During the festive season, consumption of sunflower oil would be high and consumers would ideally buy 15 litres. But during the last festive season and this time, too, we have seen them go for smaller packs of 10 litres,” she says.

Lower spending has hit her business, with sales down 10-15 percent. Earlier, daily sales clocked an average Rs 70,000 but are now down to about Rs 60,000.

Consumers aren’t just buying less. They’re also opting for cheaper products.

ApnaKlub—a wholesale Fast-Moving Consumer Goods (FMCG) distribution platform that operates in smaller cities in the northern states of Uttar Pradesh, Bihar, Jharkhand and Haryana—has witnessed an uptick in sales of local brands such as Gainda in bathroom cleaners, Goldiee Masala, Unibic and Tops in the ketchup, pickles and biscuits categories.

Daily-wage workers have borne the brunt of rising prices. Many have stopped eating vegetables and are taking measures like diluting dal to increase its quantity, says Ritu Dewan, vice-president of the Indian Society of Labour Economics.

“The daily wage earner has resorted to buying second-hand clothes and shoes, and is now walking in search of jobs instead of travelling by shared vehicles such as autorickshaws,” she told ThePrint.

“This section is only buying smaller packs of FMCG packs and even essentials and has turned to measures like using soap for washing hair instead of shampoo for saving money,” she added.

The change in consumption patterns has affected FMCG companies. Their sales volumes fell for most of 2023-24, though they have started emerging out of it now.

According to a report by consumer intelligence company NielsenIQ in August, FMCG sales volumes in India registered low growth of 3.8 percent year-on-year in the April-June quarter compared to 7.5 percent in the same period last year.

The consumer goods segment has also felt the impact of the consumption slowdown.

Wholesale passenger vehicle sales fell for a third month in September and tractor sales—a sign of the health of the rural economy—also declined in August from the year-ago period and the previous month.

According to Tractor and Mechanization Association data, tractor sales fell 6 percent in August to 50,134 units from 53,249 in the same period last year. They also were down 16 percent from July, when 59,529 tractors were sold in the country.

Revival on cards?

Businessmen are now banking on the festive season, during which they expect consumer spending to pick up as people splurge on everything from mobile phones to cars.

Shadashiv Chavan, who runs a garment shop in Saswad catering mostly to children, has his hopes pinned on the festive season.

The 77-year-old shopkeeper has been struggling with sluggish sales for more than a year now as last year’s poor rains depleted his farm income. But he’s hoping this year’s monsoon—the lifeline of the Indian economy—will turn things around.

“The rain this year has been good, and we are hearing that yield is also better compared to the last year. If farm income is well, we see good sales during the festivals,” he says.

Economists also believe this year’s good monsoon will spur consumption.

“Agricultural income is expected to be better this year as compared to last fiscal. Also, the government has been taking initiatives to boost the rural economy. These factors along with low food inflation are expected to lead to a rise in consumption this year,” says Deshpande of CRISIL.

In a bid to boost farm incomes and the rural economy, the government lifted an export ban on onions in May and a ban on non-basmati rice exports in October.

Consumer inflation fell to 3.5 percent in July, dipping below the Reserve Bank of India’s medium-term target of 4 percent for the first time since 2019.

However, experts caution that although green shoots have begun to surface after this year’s monsoon and sales have picked up, they still haven’t hit boom-time levels.

They say consumers aren’t completely out of the woods yet and the agriculture sector remains at risk.

The picture will be clearer once the kharif crop is harvested and the festive period is over.

According to a note by financial services company CareEdge’s economics team, despite an overall improvement in the performance of the monsoon compared to last year, the agriculture sector remains at risk due to regional disparities in rainfall as major agricultural regions, particularly in northern India and the Gangetic plains, continue to experience a significant deficit in rainfall.

“As of the last week of August, kharif sowing is 97 percent complete. However, compared to recent years with normal monsoons (2021 and 2022), the sowing of pulses and some oilseeds has lagged, potentially adding to price pressures given their import dependence,” it said.

The turnaround may not be drastic and speedy enough for Matkar and Pawar to buy that gold necklace and car, but it’s enough to keep their dreams alive.

(Edited by Sugita Katyal)